Re: Dickens on the Laffer Curve
If you ever wondered which end of the ideological spectrum was a humorless lot... Stephen Miller wrote: It's not as funny when you explain it... On Apr 21, 2005, at 9:51 PM, James Wells wrote: That's the trouble with the empirical testing of Laffer effects. Your selected timeframe has an inverse relationship with the revenue maximizing rate of taxation. The tax policy that maximizes revenue over the next hour is to confiscate everything. The revenue maximizing tax policy over the next century is to tax at some lesser rate that anticipates the formation of capital to expand the tax base. Depending on the time frame you chose, you can conclude that t is currently on whatever side of t* you prefer so as to make the case for a tax cut or a tax hike. jlw Stephen Miller wrote: So it worked in the short run, and in the long run they were all dead! .
Re: Dickens on the Laffer Curve
It's not as funny when you explain it... On Apr 21, 2005, at 9:51 PM, James Wells wrote: That's the trouble with the empirical testing of Laffer effects. Your selected timeframe has an inverse relationship with the revenue maximizing rate of taxation. The tax policy that maximizes revenue over the next hour is to confiscate everything. The revenue maximizing tax policy over the next century is to tax at some lesser rate that anticipates the formation of capital to expand the tax base. Depending on the time frame you chose, you can conclude that t is currently on whatever side of t* you prefer so as to make the case for a tax cut or a tax hike. jlw Stephen Miller wrote: So it worked in the short run, and in the long run they were all dead!
Re: Dickens on the Laffer Curve
That's the trouble with the empirical testing of Laffer effects. Your selected timeframe has an inverse relationship with the revenue maximizing rate of taxation. The tax policy that maximizes revenue over the next hour is to confiscate everything. The revenue maximizing tax policy over the next century is to tax at some lesser rate that anticipates the formation of capital to expand the tax base. Depending on the time frame you chose, you can conclude that t is currently on whatever side of t* you prefer so as to make the case for a tax cut or a tax hike. jlw Stephen Miller wrote: So it worked in the short run, and in the long run they were all dead! On Apr 21, 2005, at 5:10 PM, Bryan Caplan wrote: Yes, but ag collectivization in the USSR DID raise additional government revenue, at least in the short-run. The people starved, production fell, but Stalin got more grain to feed the cities and export. At least that's my recollection from Conquest. Of course, productivity growth in agriculture was very low afterwards, fitting my long-run Laffer curve story! -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate* "When a pitcher's throwing a spitball, don't worry and don't complain, just hit the dry side like I do." - Stan Musial .
Re: Dickens on the Laffer Curve
Speaking of Communism, is "The Black Book" worth having? I saw several copies yesterday at a secondhand store in San Leandro, marked about $8 if memory serves. -- Anton Sherwood, http://www.ogre.nu/
Poverty and Happiness
All this talk of the Laffer Curve seems to have skirted around one fundamental issue which I think economics has still failed to address to this very day. Namely, that time and time again, studies have shown that once you reach a certain standard of living, "happiness" depends not so much on absolute wealth as relative wealth. Furthermore, it seems that we value wealth on a relative scale while we value leisure on an absolute scale so a more competitive society can become less happy since we all do more work for no relative increase in wages and receive less leisure in return. I'm not arguing for a return to communism but I would like to see at least some economic modeling that reflects these findings. Xianhang Zhang
Re: Dickens on the Laffer Curve
In a message dated 4/21/05 5:11:04 PM, [EMAIL PROTECTED] writes: [EMAIL PROTECTED] wrote: > Taking the example of Stalin's war on the peasantry in general and the > Ukraine in particular, we see that massive confiscations of income at > marginal rates well in excess of 100% certainly detered economic > activity, to put it rather mildly. Yes, but ag collectivization in the USSR DID raise additional government revenue, at least in the short-run. The people starved, production fell, but Stalin got more grain to feed the cities and export. At least that's my recollection from Conquest. Of course, productivity growth in agriculture was very low afterwards, fitting my long-run Laffer curve story! Indeed! On page 174 of Harvest of Sorrow Conquest reports that while grain procurements rose from 10.8 million in 1928-9 to 22.8 million in 1931-2 (by official Soviet data), the confiscation had a profound effect on long-term productivity. One next page he reports that the confiscation of meat reduced "revenue" even faster; by 1931 meat confiscations had already fallen below the level of 1929. David
Re: Dickens on the Laffer Curve
So it worked in the short run, and in the long run they were all dead! On Apr 21, 2005, at 5:10 PM, Bryan Caplan wrote: Yes, but ag collectivization in the USSR DID raise additional government revenue, at least in the short-run. The people starved, production fell, but Stalin got more grain to feed the cities and export. At least that's my recollection from Conquest. Of course, productivity growth in agriculture was very low afterwards, fitting my long-run Laffer curve story! -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate* "When a pitcher's throwing a spitball, don't worry and don't complain, just hit the dry side like I do." - Stan Musial
Re: Dickens on the Laffer Curve
[EMAIL PROTECTED] wrote: Taking the example of Stalin's war on the peasantry in general and the Ukraine in particular, we see that massive confiscations of income at marginal rates well in excess of 100% certainly detered economic activity, to put it rather mildly. Yes, but ag collectivization in the USSR DID raise additional government revenue, at least in the short-run. The people starved, production fell, but Stalin got more grain to feed the cities and export. At least that's my recollection from Conquest. Of course, productivity growth in agriculture was very low afterwards, fitting my long-run Laffer curve story! -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate*
Re: Dickens on the Laffer Curve
In a message dated 4/21/05 12:26:02 PM, [EMAIL PROTECTED] writes: > And I have a sneaking suspicion that more equitable distributions of > income lead to less social conflict and rent seeking and lead to higher > growth. I wonder what the Laffer Curve would have to say about the "tax" rates and "equitable distributions of income" and "lesser or greater social conflict" and "higher or lower growth" etc, that led to and constituted the socialist Wholecaust (of which the Holocaust was a part): 62 million killed in the former Union of Soviet Socialist Republics; 35 million in the Peoples' Republic of China; 21 million in the National Socialist German Workers' Party. http://rexcurry.net/socialists.html The poverty, misery, famine and slaughter were so enormous that Holocaust Museums can quadruple in size and scope as Wholecaust Museums. Taking the example of Stalin's war on the peasantry in general and the Ukraine in particular, we see that massive confiscations of income at marginal rates well in excess of 100% certainly detered economic activity, to put it rather mildly.
Re: Laffer Curve
In a message dated 4/21/05 1:38:10 PM, [EMAIL PROTECTED] writes: >And I have a sneaking suspicion that more equitable distributions of >income lead to less social conflict and rent seeking and lead to higher >growth. Unlike you I can point to some theoretical and empirical >studies that back my suspicion up (though I wouldn't bet my life on it >being true). My point is that any of us can have sneaking suspicions. >Dueling sneaking suspicions aren't going to bring us any closer to >agreement. You're raising the bar on me. I was just trying to meet your earlier challenge; >But there is no reasonable argument (at least none that I've seen) that >tax increases in any range we've seen in this country don't raise >revenue. Disagree or not, I think my argument about long-term damage to entrepreneurship and the work ethic is a reasonable one. The Annual Reports of the Secretary of the Treasury for the early 1920s show that higher marginal tax rates did at first raise revenue, and then in succeeding years cause revenue to fall in the brackets to which the higher rates applied. People couldn't immediately adjust their much of their activities to avoid the higher rates, but over time did just that. Congress imposed something like a 100% tax on luxury boats (as I recall, as part of the tax hike of 1990), and found that they collected zero revenue from the tax. So we do have empirical evidence that higher marginal tax rates can produce less revenue. We also know that as marginal rates rise, people have more incentive to lobby for special provisions to exclude themselves or their particular activities from the the higher rates, which in turn generates hostility among people with similar incomes from non-excluded activities, generating further lobbying for expansion of the list of excluded activites. Higher marginal rates in general also raise the ire of people who see themselves as getting punished for working harder, giving more incentive to people with high incomes to work less and spend more time in leisure. Thus we had the phenomenon of doctors playing golf more often than seeing patients, etc., before Congress made large cuts in marginal tax rates during the 1980s.
Re: Laffer Curve
In a message dated 4/21/05 1:37:25 PM, [EMAIL PROTECTED] writes: By one measure, there is a big difference, in per capita GDP taking into account purchasing power parity. From the OECD site, in 1999 the U.S. had a per capita GDP of $33,836. Germany, France, UK, Italy were all between $22,000 and $24,000. Yes, the PPP per capital GDP figures for the last 15 years or so have shown a substantial gap between US and western European incomes. For that matter last I saw Canadian per capital GDP it was above European GDPs, and as I understand it, Hong Kong per capital GDP had pushed past Canadian per capital GDP into second place after American by the time the British handed the whole colony (both the leased and the non-leased portions) over to the Chinese communists. As McCloskey likes to point out, however, the gap between any of the countries the top ten or 15, for instance, shrinks into insignificance by comparison between the top 10 or 15 and the bottom 10 or 15, or even middle third of the world's per capita income distribution. The real question, according to McCloskey, is not why does Germany have only 75% of US per capital GDP, but why does Bangledesh have only 5% of US per capital GDP. People in the countries with the top 10 or 15 per capita incomes in the world are fabulously wealthy even compared to half a century ago, to say nothing about compared to before 1700. People living in the poorest parts of the world, by contrast, are still poor by pre-1700 standards.
Re: Laffer Curve
In a message dated 4/21/05 3:13:06 PM, [EMAIL PROTECTED] writes: So, if you have labor supply and demand functions that don't meet these boundary conditions, then it doesn't make a whole lot of sense to talk about what happens as you approach these boundary conditions, right? In other words, if you see tax revenue continuing to increase for rates close to 100%, then the fact that it doesn't go (continuously) to zero at 100% means this is not the right model for this question, no? Also, because that particular labor supply curve doesn't recognize an upper limit on time, it fails to take into account the fact that the wage rate (net of taxes) is the price of leisure, which is a normal good. While this might not matter for small changes in the middle of the range for most labor supply questions, it's my understanding (is this correct?) that the theoretical basis for the Laffer curve is that leisure has positive value, and increasing the tax rate can push the net wage rate below the marginal value of leisure for some fraction of the population. So a labor supply function that does not take into account leisure (i.e., is not "backward bending" at some point) is also not appropriate for this issue, right? That makes sense to me, Robert, but I'd bet ready money (if I had any) that you won't persuade Bill. :-) David
Re: Laffer Curve
> >> Ls=S [w(1-t)]^b > > > >Doesn't this allow labor supply to be unbounded? And isn't this a > >problem since, for example, you can't supply more than 24 hours of > >labor per day per person? > > Only if the wage is unbounded too. You might find ways to increase > your work without bound if your wage was infinite. :-) > > Seriously, you know as well as I do (you're a Professor at the B > school at Chicago yes?) that there are lots of functional forms we > use in economics that behave this way around boundaries. Yes, I know that. (Full disclosure: I'm not a prof there, but I got my Ph.D. there and I was already signed up for this list at that e-mail address so it was just easier to keep using it.) However, in this case, the boundary condition is critical. In a sense, the Laffer curve is DEFINED by boundary conditions -- with tax revenue at zero for rate=0% and rate=100%. So, if you have labor supply and demand functions that don't meet these boundary conditions, then it doesn't make a whole lot of sense to talk about what happens as you approach these boundary conditions, right? In other words, if you see tax revenue continuing to increase for rates close to 100%, then the fact that it doesn't go (continuously) to zero at 100% means this is not the right model for this question, no? Also, because that particular labor supply curve doesn't recognize an upper limit on time, it fails to take into account the fact that the wage rate (net of taxes) is the price of leisure, which is a normal good. While this might not matter for small changes in the middle of the range for most labor supply questions, it's my understanding (is this correct?) that the theoretical basis for the Laffer curve is that leisure has positive value, and increasing the tax rate can push the net wage rate below the marginal value of leisure for some fraction of the population. So a labor supply function that does not take into account leisure (i.e., is not "backward bending" at some point) is also not appropriate for this issue, right? > Again, the boundary conditions are only relevant to > the question I was addressing - - whether there are any functional > forms that don't yield a Laffer curve. This very standard one > doesn't. Sure there are functional forms that don't yield a Laffer curve -- but they don't satisfy the assumptions on which the Laffer curve is based, either. If I might draw an analogy, if we were discussing the question of whether the angles of every triangle add up to 180 degress, and you showed me a square (a "very standard shape") where all the angles add up to 360 degrees, that wouldn't really prove that the theorem about triangles is wrong. --Robert Book [EMAIL PROTECTED]
Re: Laffer Curve
> >But there is no reasonable argument (at least none that I've seen) >that >tax increases in any range we've seen in this country don't raise > >revenue. > >Disagree or not, I think my argument about long-term damage to >entrepreneurship and the work ethic is a reasonable one. Sorry. Mistyped. Meant to write that there is no reasonable _study_ that has been done that suggests that tax rates in the range we've seen... Its hard to argue that what you are saying isn't reasonable. But that's the problem. I think I could come up with reasonable arguments for a lot of things for which there is no evidence and that probably aren't true. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Laffer Curve
>And I have a sneaking suspicion that more equitable distributions of >income lead to less social conflict and rent seeking and lead to higher >growth. Unlike you I can point to some theoretical and empirical >studies that back my suspicion up (though I wouldn't bet my life on it >being true). My point is that any of us can have sneaking suspicions. >Dueling sneaking suspicions aren't going to bring us any closer to >agreement. You're raising the bar on me. I was just trying to meet your earlier challenge; >But there is no reasonable argument (at least none that I've seen) that >tax increases in any range we've seen in this country don't raise >revenue. Disagree or not, I think my argument about long-term damage to entrepreneurship and the work ethic is a reasonable one. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate*
Laffer Curve
Jeff Rouse wrote: "I'd like to add one of the "big questions" that I think about from time to time. One arguement against welfare programs in the US is that with lower taxes and more incentinve to work and invest, over time, even people in the bottom 20% of the income distribution will eventually be better off than middle income Europeans who have less incentinve to act in ways consistent with economic growth. Now after 50 years of relatively generous welfare programs in Europe compared to the US, I do not see the US quickly outpacing the Europeans. Yes, we have higher incomes, but also longer work weeks. As I recall from the last set of numbers I saw, US productivity per hour is not THAT different than in Europe (I am thinking of France and Germany in particular). What am I missing?" By one measure, there is a big difference, in per capita GDP taking into account purchasing power parity. From the OECD site, in 1999 the U.S. had a per capita GDP of $33,836. Germany, France, UK, Italy were all between $22,000 and $24,000. For things to be about the same, it seems like the Europeans would have to put a big value of leisure time. Is that something that can be measured? I don't know much about purchasing power parity, so this may not be the right comparison. Also, maybe the differences I show have not changed much over 50 years. I don't know what they used to be. But I have read that Germany has been trying to scale back its welfare programs a little to get more foreign investment. Cyril Morong
Re: Dickens on the Laffer Curve
I'd like to add one of the "big questions" that I think about from time to time. One arguement against welfare programs in the US is that with lower taxes and more incentinve to work and invest, over time, even people in the bottom 20% of the income distribution will eventually be better off than middle income Europeans who have less incentinve to act in ways consistent with economic growth. Now after 50 years of relatively generous welfare programs in Europe compared to the US, I do not see the US quickly outpacing the Europeans. Yes, we have higher incomes, but also longer work weeks. As I recall from the last set of numbers I saw, US productivity per hour is not THAT different than in Europe (I am thinking of France and Germany in particular). What am I missing? -Jeff >>> Bryan Caplan <[EMAIL PROTECTED]> 04/21/05 10:22 AM >>> I think Bill accidentally sent this to me privately instead of the list. Subject: Re: Laffer Curve From: William Dickens <[EMAIL PROTECTED]> Date: Wed, 20 Apr 2005 16:31:33 -0400 To: [EMAIL PROTECTED] >>I'll bite. I completely agree with Bill in the short-term. Higher >>taxes raise revenue. But I also have a sneaking suspicion that higher >>tax rates in the long run may hurt growth so much that the present value >>of taxes would be higher if rates were lower. And I have a sneaking suspicion that more equitable distributions of income lead to less social conflict and rent seeking and lead to higher growth. Unlike you I can point to some theoretical and empirical studies that back my suspicion up (though I wouldn't bet my life on it being true). My point is that any of us can have sneaking suspicions. Dueling sneaking suspicions aren't going to bring us any closer to agreement. >> Just talking to people >>who grew up in Scandinavia, they frequently tell me that high taxes had >>no effect on the older generation. But (combined with the welfare >>state) they raised a generation of shiftless, no-ambition slackers. If >>the U.S. had Swedish-level taxes during the 80's, I suspect it would >>have been a far less entrepreneurial and innovative economy in the 90's. Two thoughts. First, the empirical studies on the effects of distribution of income on growth suggest no such effect. But I have no idea how robust those results are and wouldn't be at all surprised if they allowed for some range of results if properly done. Personally I have little doubt that the various forms of welfare (not progressive taxation) do tend to destroy initiative among some parts of the population. I've had too much personal experience with smart, talented people getting caught up in welfare programs and not going anywhere not to suspect that this is a serious draw back of such programs. That's why I very much like to tightly time limit any generous welfare program. However, I have to admit that I don't know that there just aren't slackers in the world (some talented and bright) who would find parents, friends or some other less desirable way to support themselves if there weren't welfare programs. I don't know of any cross national study of long term welfare participation (OECD might have some aggregate study of this). The European Community Household Panel could be combined with the GSOP and the PSID or SIPP to good end to do such a study. Any graduate students out there looking for a thesis topic? - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate*
Re: Dickens on the Laffer Curve
And I have a sneaking suspicion that more equitable distributions of income lead to less social conflict and rent seeking and lead to higher growth. I wonder what the Laffer Curve would have to say about the "tax" rates and "equitable distributions of income" and "lesser or greater social conflict" and "higher or lower growth" etc, that led to and constituted the socialist Wholecaust (of which the Holocaust was a part): 62 million killed in the former Union of Soviet Socialist Republics; 35 million in the Peoples' Republic of China; 21 million in the National Socialist German Workers' Party. http://rexcurry.net/socialists.html The poverty, misery, famine and slaughter were so enormous that Holocaust Museums can quadruple in size and scope as Wholecaust Museums.
Dickens on the Laffer Curve
I think Bill accidentally sent this to me privately instead of the list. Subject: Re: Laffer Curve From: William Dickens <[EMAIL PROTECTED]> Date: Wed, 20 Apr 2005 16:31:33 -0400 To: [EMAIL PROTECTED] >>I'll bite. I completely agree with Bill in the short-term. Higher >>taxes raise revenue. But I also have a sneaking suspicion that higher >>tax rates in the long run may hurt growth so much that the present value >>of taxes would be higher if rates were lower. And I have a sneaking suspicion that more equitable distributions of income lead to less social conflict and rent seeking and lead to higher growth. Unlike you I can point to some theoretical and empirical studies that back my suspicion up (though I wouldn't bet my life on it being true). My point is that any of us can have sneaking suspicions. Dueling sneaking suspicions aren't going to bring us any closer to agreement. >> Just talking to people >>who grew up in Scandinavia, they frequently tell me that high taxes had >>no effect on the older generation. But (combined with the welfare >>state) they raised a generation of shiftless, no-ambition slackers. If >>the U.S. had Swedish-level taxes during the 80's, I suspect it would >>have been a far less entrepreneurial and innovative economy in the 90's. Two thoughts. First, the empirical studies on the effects of distribution of income on growth suggest no such effect. But I have no idea how robust those results are and wouldn't be at all surprised if they allowed for some range of results if properly done. Personally I have little doubt that the various forms of welfare (not progressive taxation) do tend to destroy initiative among some parts of the population. I've had too much personal experience with smart, talented people getting caught up in welfare programs and not going anywhere not to suspect that this is a serious draw back of such programs. That's why I very much like to tightly time limit any generous welfare program. However, I have to admit that I don't know that there just aren't slackers in the world (some talented and bright) who would find parents, friends or some other less desirable way to support themselves if there weren't welfare programs. I don't know of any cross national study of long term welfare participation (OECD might have some aggregate study of this). The European Community Household Panel could be combined with the GSOP and the PSID or SIPP to good end to do such a study. Any graduate students out there looking for a thesis topic? - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] http://econlog.econlib.org "[M]uch of the advice from the parenting experts is flapdoodle. But surely the advice is grounded in research on children's development? Yes, from the many useless studies that show a correlation between the behavior of parents and the behavior of their biological children and conclude that parenting shapes the child, as if there were no such thing as heredity." --Steven Pinker, *The Blank Slate*
